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A New Drought Index-Insurance Model for African Pastoral Regions (Phase 2)

Project Description

This project leverages our expertise in the design and implementation of Index-Based Livestock Insurance (IBLI) products to support African Risk Capacity (ARC) in developing a new macroscale model for drought index insurance targeting the extensive pastoral areas of Africa.

Research Overview

During the first phase of the project, our team—with technical support from the Joint Research Center and University of Twente researchers—has developed for ARC a methodology to determine a pastoral index based on Normalized Difference Vegetation Index (NDVI) satellite imagery. The work acknowledged that NDVI is overall a reliable indicator of vegetation condition for regional-scale monitoring, and it outperforms the index currently used at ARC for drought detection in African rangelands (the Water Requirement Satisfaction Index, WRSI). However, to provide an insurance product to cover drought risk at national levels in the pastoral areas of Africa, the financial component of the model needs to be developed together with implementation and customizations protocols.

Project Activities

Perform sensitivity analysis of cNDVI drought model to input parameters

The cNDVI model demonstrated that it outperforms the WRSI model in detecting drought conditions over pastoral areas, thus reducing the overall basis risk of the insurance product. However, considering that the customization process is an essential step in ARC country engagement, it is also important to evaluate the sensitivity of the proposed model to changes in key inputs that could be customized by end users. This would allow for the definition of operational modalities to customize the index.

Define an alternative processing chain based on a different satellite sensor

A critical operational requirement for any ARC index insurance product is data continuity in order to guarantee the fulfillment of the contractual terms of the active policy. MODIS NDVI satellite imagery was selected as the most suitable data source. However, the long-term continuity of the MODIS mission cannot be guaranteed, and an alternative data source should be identified. We will perform a comparative analysis to understand the potential implications of the data source change on the product value and basis risk.

Propose an impact/payout model suitable for pastoral areas

The drought model needs to be coupled with an impact/payout model to estimate the indemnity payments.

This research activity will investigate alternative options for indemnities calculations suitable for African pastoral areas and propose a new impact/payout model. The current ARC vulnerability model will be used as a benchmark, while alternative approaches will be explored based on the IBLI experience (adapted to a macro-level product) and on the literature review.

 

Provide technical support for implementation and training

ARC plans to launch the new pastoral insurance product by 2019. This would require that the technical implementation of the product be completed and tested and that appropriate modalities for stakeholder engagement and customization are designed. The research team will support ARC in the technical implementation of the product by assisting the developers and assisting the operational implementation of the new product through selected case studies (e.g., Kenya, Ethiopia, Senegal, and Mauritania).

 

Research Partners

Funded by

African Risk Capacity (ARC)

Project Timeline

April 2018 - December 2019

Contact

Francesco Fava